Summary

Just adaptation ensures that the process of adjusting to climate change is fair and equitable. Without such considerations, a lack of community support can stall projects essential for protecting investor returns, leading to avoidable climate-related losses and the erosion of social licence. This ultimately undermines long-term portfolio performance. Conversely, just adaptation produces more efficient and cost-effective outcomes, reducing future loss and damage while identifying new investable opportunities in resilience infrastructure and adaptation solutions. By embedding these principles into investment decisions, risk assessment, stewardship, and policy advocacy, investors can prevent the redistribution of climate risk and protect the long-term interests of beneficiaries while contributing to a more resilient, investable economy.

1. Introduction

This report introduces members of the Investor Group on Climate Change (IGCC) to the concept of just adaptation and identifies potential areas for future work. It aims to explain why just adaptation matters for institutional investors, both at the individual asset or portfolio level and for managing broader system- and economy-wide risks that affect long-term returns. The paper explores how investors can start to incorporate these principles into their investment strategies, stewardship activities, and policy engagement to strengthen portfolio resilience while supporting fairer and more effective adaptation outcomes.

2. What is just adaptation?

Climate change impacts are inherently unequal, as some communities face greater exposure to climate hazards while possessing fewer resources to cope with them. While institutional investors have increasingly engaged with the social dimensions of the transition to a net-zero economy (just transition), there is currently far less focus on the social risks and impacts associated with climate adaptation. Even under lower temperature pathways, adaptation will be essential to protect people, ecosystems, and assets. If adaptation is not undertaken fairly or if it does not occur, existing vulnerabilities may worsen. This occurs through maladaptation, where actions shift climate risk to other communities or regions. For example, local flood defences like levees may reduce risk for some but increase it for others. At the international scale, retailers may cancel contracts or sell assets in high-risk countries without considering the impacts on local workers and communities.

3. Why is just adaptation important for institutional investors?

Institutional investors rely on a resilient and productive economy to deliver long-term returns for beneficiaries, making just adaptation financially material. Poorly designed, contested, or delayed adaptation can reduce social licence, slow implementation, and increase physical risks to assets and operations. Inattention to just adaptation can entrench inequality and weaken labour participation. For investors, these dynamics can translate into more volatile returns, slower progress towards net zero, and heightened systemic risks, including disrupted supply chains, climate migration, and civil unrest. This is particularly relevant for sectors underpinning community wellbeing, such as power generation and distribution, transport services, consumer goods, food retail, residential real estate, and community housing.

4. IGCC’s work on just adaptation

IGCC has already begun integrating just adaptation into its policy and investor guidance work. In its Policy Priorities for 2026–30, IGCC recommends that governments ensure adaptation plans support groups that are disproportionately vulnerable and involve communities in decision-making. Furthermore, IGCC’s Investor Expectations of Companies on Physical Risk Management and Resilience includes an expectation that companies demonstrate how adaptation actions consider workers, communities, and First Nations people while avoiding maladaptation. These initiatives highlight two key investor levers to support just adaptation: policy advocacy and corporate engagement.

5. How can investors support a just adaptation?

Investors can support just adaptation through several indicative actions. Firstly, they can integrate just adaptation into existing decision-making processes, including risk management, due diligence, and investment appraisal. This involves identifying where adaptation actions could shift risk onto other groups and assessing whether affected communities and workers are meaningfully involved. Secondly, they can advocate for just adaptation to be embedded in government plans, ensuring clear and long-term policy settings that reduce the risk of reactive outcomes. Thirdly, they can support the development of equitable financing models, such as blended finance pilots that direct capital to underfunded adaptation needs. Finally, they can engage with investee companies through stewardship to understand how their adaptation decisions incorporate social considerations and avoid maladaptation.

6. Investor roundtable and future work

In March 2026, IGCC convened an investor roundtable to explore the role of investors in enabling just adaptation and to identify priorities for future work. Three key areas emerged: stakeholder mapping to clarify the roles and responsibilities of governments, investors, and companies; targeted research to identify the regions, sectors, and asset types most at risk of inequitable outcomes; and the development of guidance to integrate just adaptation into existing investor activities. While just adaptation is referenced in some existing guidance, participants noted that good practice remains unevenly understood and applied, particularly in risk assessment and investment appraisal.

7. Next steps

Just adaptation is essential for enabling effective adaptation in Australia and globally. It supports a resilient, net-zero economy while protecting long-term investor returns. This introduction serves as a foundational resource to inform future IGCC guidance, research, and engagement. It aims to support early discussions on how investors, working with governments and companies, can embed just adaptation into their core processes to ensure a more equitable and resilient future.